Obama’s Jobs Plan: How to create millions of new jobs on a shoestring

Expect one thing from President Obama’s speech on Thursday: a mini ARRA, a smaller version of essentially the same stimulus plan as that of 2009. He will probably call for putting the unemployed construction workers to work on infrastructure projects, he will propose tax incentives to firms to hire the unemployed, he will keep pushing for the weatherization of buildings and more funding to teachers and schools.

He will keep advocating a free trade agenda, whatever form that might take. And if informed pundits are correct, he will ask for about a third of the ARRA funds, around $300 billion.

In 2009 ARRA passed a total of $787 billion (which was extended to $840 billion). About a third was allocated to tax cuts, another third went to entitlements and the remaining third (about $275b of which $205b have been disbursed) went to finance various projects through grants, loans and contracts—yes, the same weatherization projects he was advocating at the beginning of his presidency, the same teacher retention programs, school renovations, the same subsidies to firms for (true, mostly green) energy production.

It does not appear that we will see much that is new tomorrow, but the approach will be much more timid, given the deficit phobia that has gripped Washington. To be clear, the Recovery Act worked, but had a rather smallimpact on jobs for two reasons 1) the actual direct job creation component was far too small (for the most part itwas contained in that third, which went to grants, contracts and loans) and 2)it was poorly targeted (not all of these funds actually created new jobs forthe unemployed—a topic for a different blog).

With such a small direct job creation component, it is nosurprise that ARRA created only 1.2 million jobs in direct employment. If weconsider the secondary, tertiary and subsequent effects from the entire ARRA spending(including tax rebates and entitlements) and account for a multiplier effect, whosehigh estimate according to the CBO is $2.50, weare looking at 3.3 million jobs created from ARRA in 2 years (2009-q2 to2011-Q1). So yes the ARRA did create jobs but too few and at a time when theeconomy was experiencing its fastest private sector job loss since the GreatDepression.

In January 2009, I argued thatwhat the president should do in his ARRA proposal is offer direct employment tothe jobless immediately and without delay. If instead of all the tax cuts,subsidies, and entitlement extensions he had offered full-time employment tothe unemployed in a transitional public sector jobs at a living wage, we wouldhave prevented the precipitous increase in the unemployment rate that followed.Furthermore, had we targeted the ARRA better we could have created 10-20 million jobs for the same price tag!

But we did not embrace the bold approach then and we will definitelynot embrace it now. The President will once again offer tax cuts and taxincentives, subsidies and other cash support, which will leave a rather smallamount for his “new” plan of putting Americans to work through construction andpublic infrastructure investment. Can we expect 100 billion in directemployment through infrastructure investment? It seems highly unlikely if hismini-ARRA is to contain all of these other components (tax cuts, rebates,incentives, subsidies). And if the direct employment portion of the ARRA in2009 (which, again, was not very well targeted) created only 1.2 million jobs,how many jobs should we expect from his new and much smaller plan that he willadvocate on Thursday? If the President offers us a mini ARRA on Thursday, it will not create the number of jobs we need. We have over 12 million unemployed people and millions more withoutfull time employment. 1 or even 2 million jobs just don’t cut it.

Instead, I propose the following:

Get whatever budget you can negotiate through Congress.If pundits are correct and the President proposes $300 billion and manages toget Congress to sign on it, he should spendevery single penny on directly employing the unemployed.

Set up an office where the jobless who want towork would sign up expressing their interest in working in a public project.

Offer a base wage to all who show up for work. Ihave proposed a universal job offer for all of the unemployed at a living wage,but if the President only gets $300b that will be impossible. So we’ve got towork within these constraints to get the ‘most bang for the buck’.

Match explicitly the jobless with the projects thatwe need done in the most distressed communities and in the areas that require themost public investment.

So let’s take a look at what one could do with such a budget.

Some of the most underserved and distressed sectors are those inbasic education and health services. Currently we have 400,000 officiallyunemployed in the education, training and library services and 250,000 unemployedin the health service sector. Offer all of these jobless people direct employment and placethem in public hospitals and health center around the nation. They are all understaffedin these times of need. With the cuts in Head Start programs, basic educationhas been seriously undermined. Despite all of the reforms in our publicschools, classrooms remain overcrowded and undermanned. Put the jobless teachers to work. Sadly, the workers in these two importantsectors earn some of the lowest wages. On average, preschool teachers andhealth service workers get $12/hr (BLS data). If we devisea bold program that puts all of the 650,000 jobless from these sectors to workin a full time job for a year, only the wage bill will cost $16 billion dollars,which is peanuts in comparison with the actual value we get – atransitional/safety net job for the unemployed to work for the public purposein key public sectors.

Let’s take the Construction and Installation occupation.There are 2.6 million jobless people who used to earn an average of $20/hr. Putthem to work. All of them. The wagebill for a year-long transitional full-time job in the public sector for allwould cost $108 billion and in the meantime we will get much needed improvements in our dilapidated infrastructure.

Employment in farms/fisheries can also deliver considerablebang for the buck, as can those in food preparation services. In both of theseindustries the average wage is $9/hr and the jobless rate is 200,000 and 1,000,000respectively. Hire the jobless farmers to work on soil improvement, runoffprevention, water purification projects, river bank fortification. Fund some ofthem to set up community farming and transition to sustainable agriculture.Staff the food banks, school cafeterias, community centers, and homelessshelters across the nation with people who lost their jobs in the foodpreparation industry. After all, nearly 1 in 4 children in the US live inhouseholds that struggle to put food on the table. Surely this is one of themost pressing needs to be met. The wage bill for hiring those 1.2 millionpeople? $22 billion dollars.

And of course we have 800,000 unemployed youth to thinkabout. Can we not put them to work for the public purpose? Can we not ask themto participate in mass reforestation projects, in clean-up and improvement of ourpublic spaces, recreational areas, hiking trails and boardwalks? Can we not putthem to work in CCC-type projects where they can gain valuable experience, start building life long skills while helping the community? The wage bill for a year at $8/hr: $13billion

In sum:

Sector/Occupation

# of unemployed in that sector to be hired for the public purpose

Wage bill for a year-long full-time transitional employment

Health services, preschool, primary education

650,000

$ 16 billion

Construction and Installation

2,300,000

$108 billion

Farms, Fisheries, Food Preparation

200,000

$ 22 billion

Youth Corps

800,000

$ 13 billion

TOTAL

3,950,000

$ 159 billion

Approximately 4 million jobs in direct job creation for awage bill of $160 billion.

Yes, of course, of course, there are so many caveats andissues to address.

First of all, we have to double (or triple) these costs to accountfor materials. This means that $300 billion is the bare minimum President Obamashould be asking for. But if we account for the secondary and tertiary jobcreation effects in the private sector after the multiplier effect from the newlycreated demand, we can calculate the total job creation effect from this smallprogram that would be greater than 4 million. Secondly it will make other expenditures by government unnecessary (e.g. unemployment insurance). The extra income and its associated expenditures will also bring important revenue for states. The federal deficit will take care of itself, even though as I have said before,deficit reduction per se should notguide policy decisions. Not only willthis approach propel the economy forward, but in the end we will have a muchgreater employment effect to show for with a smaller stimulus than the one from2009.

Now I would personally prefer it if the President asked foranother $800 billion and put 10-20 million people to work. I would also preferthat the public sector offer a lowerwage than that of the private sector in order not to compete with and crowd outprivate sector employment. There are many other benefits to establishing aliving wage floor in the public sector, which I have discussed elsewhere in myacademic work.

The above calculations are used, because federalconstruction contractors are required to pay their workers no less than thelocally prevailing wages. However, if the government were to create a newdepartment that can be called, for example, “Transitional Public Employment”which directly employs in the public sector the workers for the above-mentionedprojects and does not contract them out, then it can createmany more jobs for the same budget. The projects can be administered atthe state or local level of course to increase efficiency. If these jobs were created at anestablished base wage (Warren Mosler has proposed $8/hr;I prefer a slightly higher wage to bring it closer to a living wage for moststates, e.g., $10/hr), then we can fund the wage bill for 7-9 million people with just $150billion (again, you can add 50% for materials and overhead and hit the $300 budget figure)!

Granted, these are rather simple calculations but they arebased on actual Bureau of Labor Statistics data and give the bare minimum jobcreation we should be shooting for with a $300 billion budget. Recall, we have20 million people who are unemployed and underemployed, so our plans must bemuch more ambitious.

All of the above provides a sense of perspective. We needthe most “bang for the buck” that we can get. And direct employment of theunemployed in a manner that fits the jobs to the people and their skills to theneeds of the communities is the only way to go.

So go ahead, Mr. President, hire the unemployed. Of course,you’ve also got to actually sit down with your agency planners and execute thisplan. And for this, a lot of cleverness and imagination will be required. Butdo not despair we’ve done it before; we can surely do it again.

I can already hear the critics. “No, the government can’tdo anything right. It is an administrative nightmare, really an impossibility, toorganize these projects”. I’ve heard it all. But I have studied the New Dealand other massive large scale public investment projects around the world and inmost cases, they were up and running in a few months and many were enormouslysuccessful. To the naysayers I can only respond “Argue for your limitations,and sure enough they are yours”. Do we really believe that Americans cannot do somethingif they want to do it?

5 Responses to Obama’s Jobs Plan: How to create millions of new jobs on a shoestring

I like it, but here is a question. A local construction company can argue that you are taking buisness away from them, and so can their employees. And you may be paying less than the prevailing wage scale. The local government would also like to give the business to the federal govenment b/c it will not impact their local budgets, at least so much. So given those issues, why is this not "crowding out of private busines"?

Thanks you. Sure, private contractors will complain. They'll want the jobs and the profit margins associated with them. But we will not be taking away jobs from them, we will be creating new projects with the unemployed workers (which these companies have not hired). Local contractos have alredy hired everyone they want to hire and any additional demand directed their way will have a very small jobs impact. Ive looked at ARRA: little bang for the buck in terms of jobs, but lots of spending on private contracts. We need a direct approach tp hiring the jobless through WPA type work, even if the 'captains' of industry complain. Tcherneva

OK So I get the need for a direct approach. But I'm more progressive than lots. Some, perhaps most, will see this as an "assault on private business". It is hard to see how this kind of approach goes anywhere. Maybe unemployment has to get worse for our government to consider this kind of approach.Perhaps one way would be to involve private business, although that means some of the money gets delayed and "leaked" to be kind.

Thanks. I do not minimize the problem. It's the famous conundrum Kalecki posed in 1942. The captains of industry will oppose policies for full empl–whatever they are. Ive seen it recently in Argentina–a very effective policy was dismantled because a lot of neolib pressure for the business community–of course that happened only after the economy recovered sufficiently. So yes, a more serious crisis may be the thing that will push businesses to sign onto this approach. But I am more interested in explaining the merits of the direct approach at all PHASES of the business cycle. Direct employment is the way to go even in milder recession 1) to maintain full empl 2) for better income distribution. Involving the business community is what Keynes preferred too–but you've got to control the rt of profit and other things–and they will still object. I prefer to involve the non-profit private sector. But once we understand the merits of the direct job creation approach relative to the generalized agg demand approach, we can have different implementation proposals to make it work. -Tcherneva

I would love to see ELR/JG implemented, and not just as a temporary fix. Thanks for providing some detail to flesh out the picture. I am wondering, however, whether direct job creation is enough to return GDP to trend. I realize that larger deficits do not seem politically viable, so ELR/JG's relatively small price tag is a great selling point. Put aside for a moment that current American politics is dominated by bad economic ideas. Is larger deficit spending necessary to kickstart the economy? Or would ELR/JG be sufficient to do that as well as its primary objective of reducing unemployment?